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Foreword
Lynd Morley examines the latest players in the mergers and
acquisitions arena and what the proposed deals signify about the telecoms industry in general
Already dubbed the battle of the brands – Virgin versus Sky – the recent announcement of a proposed merger between Virgin Mobile and NTL has been accompanied by some undisguised glee – in the UK press, at least – at the prospect of someone finally taking on Rupert Murdoch’s empire, and giving it a run for its money.
The deal would create a communications and entertainment giant valued at around £4.9bn, reaching some 5m mobile customers, around 2.5m broadband Internet customers, and 4.3m fixed-line accounts, and would be the first company in the UK to have a quadruple-play offering of mobile, broadband services, fixed line and TV.
Effectively a reverse take-over, NTL would be re-branded Virgin, and there can be little doubt that Virgin’s considerable experience – and success – in marketing it’s brand will add much needed pizzazz to the somewhat duller cable group.
Good branding, of course, does not, on its own, guarantee success. As Sue Richardson, Principal Analyst at Gartner, comments: “The Virgin brand will not be a panacea for NTL’s poor customer service reputation. If the service is bad, re-branding will not help.”
She goes on to comment, however, that, overall, there are undoubtedly opportunities to be gained from the deal. “Bundling and cross selling will be the initial push, but a more aggressive and focused content strategy will be necessary to take full advantage of the opportunities,” she comments, noting that NTL has always been ambivalent about content, historically describing itself as an infrastructure company.
“When the merger with Telewest was announced, it was uncertain whether Flextech would be retained or sold off. The TV part of NTL’s tripe-play represents its lowest margin business, and is regarded as a poor relation by the Internet and telephony businesses. This deal, though, could signify a change of approach to focus and develop a more aggressive content strategy.”
Gartner, of course, were not alone in being quick to comment on the merger news. Taking a more pragmatic approach than the press’ general celebration of a giant (in the shape of Rupert Murdoch) killer (in the shape of Richard Branson), Capgemini Telecom Managing Consultant, Jerome Buvat, believes the merger is mostly a defensive move by two players facing increasingly competitive market conditions.
“In the TV market,” he comments, “NTL is facing growing competition from Digital Terrestrial TV which now captures more than 70 per cent of net digital TV additions. Competition from BT launching TV over DSL broadband and the likely similar moves from local loop unbundlers will also limit NTL’s growth in TV.”
Things don’t look a lot rosier for the cable company in the broadband market, either.
“DSL represented more than 80 per cent of new broadband connections in 2005 and this proportion is likely to grow as local loop unbundlers increasingly enter the market,” Buvat comments, adding that in the voice market, NTL is facing pressure from both VoIP players like Vonage, and from resellers like Carphone Warehouse which have been very successful.
He goes on to point that Virgin Mobile is also facing tough competition in the mobile space, from both new entrants and incumbents. Tesco Mobile, for example, added more customers than Virgin in the first nine months of the year: 185K customers compared to 122K for Virgin. Virgin also saw its churn increase from 22.6 per cent in 2004 to 24 per cent in 2005.
Buvat concludes: “The merger will certainly help both NTL and Virgin, but is unlikely to resolve NTL’s competitive issues in the TV and broadband markets. Virgin will bring a strong brand to NTL and will undoubtedly benefit from NTL’s strong presence in the family segment.”
Lynd Morley is editor of European Communications
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